A Business Owners Worst Nightmare (the $10,000 mistake)

Businesses can get too busy. 

If this happens, it can be disastrous. In fact, rapid growth is one of the top 3 reasons businesses fail! Why, because it stresses out everything in your business. That includes cashflow, experienced people, Your business systems, leadership ability and Management skill.

Let’s take a look at how this can happen and what you can do to prevent it.

Rapid business growth causes stress

It’s true. Your business is growing and you’re running hard to keep up. You needed more people weeks ago but were unable to hire skilled people for your growth. Now you have hired new people that you will need months to train to bring them up to speed. You’ve been so busy that you may not have looked at your financials in a while. Even though you know cash flow is tight you have lost the awareness on how tight it really is. That’s how this problem starts. 

If you are too busy – you are on the road to the $10K mistake. It’s where you have the right person, at the wrong place, in the right time. Then they make a decision to do something because they don’t want to trouble you. Usually, it’s a new person who is under trained. They want to do a good job and are unaware of the problems their actions will create. That may be:

• a field worker who misses a step and causes damage,
• someone who doesn’t check their work and then there is damage to a client’s business or property,
• someone working on a computer system with poor training and then incorrectly order, send the wrong information, or just miss sending a product or invoice,
• someone who has limited customer service training and insults your customers, and you lose them.

Sadly, we’ve seen all of these situations. Why do we call the 10,000 mistakes? We’ve worked with a number of businesses that have made this mistake, and it’s expensive. Most businesses will have out-of-pocket expenses that will cost them tens of thousands of dollars. That kills cashflow and profit. On top of that, it will take you two years to recover from something like this happening because the profit goes right to the floor. 

You have to be on top of things and when you get too busy that you’re not doing your daily routine of management and taking care of people – you’re ripe for the hidden problem that will arise from that, and it’s called the $10,000 mistake. We want to avoid that – so, how do you prevent this from happening?

How to prevent big mistakes in your business

It’s really simple – you have to have some limits or boundaries to what people can do without your approval. Without limits, you are going to continue to deal with everything that is on your desk. Unfortunately, you’ll have little time to watch for those potential problems that cost a lot.  This usually means that you will be working so hard that you’ll miss the indicating signs that something could happen.  

The first thing you will want to do is look for those areas that the biggest problems can arise. Is it in customer service, accounts receivable, shipping, service delivery, or operations. You will want to set limits for each area in time. For now, start with the one area that is causing the biggest problems or the one that could. Then you want to do the following:

1. Decide who is in charge of that area: Meet with them and establish what limits they will have that they can handle on their own. Let them have authority up to the level of their experience and knowledge of the overall business flow. For example, if they are new but have strong experience in your industry give them a reasonably small limit to start. Discuss each potential decision they need to make. Do this until they understand how you want things to run. When you think that they have a good understand, test them. When the next decision arises and they come to you, ask them what they would do if they needed to decide on their own, and why. If they answer effectively, their ready for you to delegate this to them and give them a limit. 
2. Set limits: Each person in your business should know what authority level they have on their own and when to bring decision to their department supervisors. Some new people may have no limit to make a decision on behalf of the company. Other may have more based again on their experience and level of understanding of the boundaries for each area.
3. Educate each person on their personal limits: Everyone on the team should know what they can do on behalf of the company without wondering if they need to get approval. Often, team members are unaware of their limitations – that’s dangerous. These people make decision based on what they know which can be extra costly. Even something as simple as changing how something is shipped can make and order lose money. Watch out for those people who like to take on the decision-making role. They can stretch their authority and create problems fast.
4. Test their decision-making thought process: Ask them what they think about this decision they need to make. If they have the right-thinking, it’s time to give them more responsibility. This is a great time to develop reports or request forms for those bigger decisions. Then you can see what decisions are being ling before they affect your bottom line. Once the limit is hit, they need to refer to a manager to get approval.
5. Set their Limits: The limits you set can be monetary, unit or situation-based limits.
   1. Monetary limits are reflected in how much they can spend. Often businesses will limit meal & hotel spending on away jobs, for example. This could also be purchasing materials with limits on unit prices or even tools.
   2. Unit limits could be on how many man hours being used to produce a product. Most department mangers will have limits spent on how many people they can hire to produce the results they need to. Unit limits could also be used to manage losses to theft or wastage. In the restaurant business limits could be observed on expensive components.
   3. Situation based limits could be used to curb problems you see. A business owner who notices that his employees are ordering tools or supplies at a high rate could impose limits to prevent overspending. I personally had this happen in one of my past trades businesses where the installers were leaving small tools on the job and then picking up replacements at the wholesaler without authorization. By the time I received the invoice, this individual racked up several thousands of dollars!
6. Build Reports: Create systems to support your management of these new limits. That way you will see who is following the new rules and what needs to be adjusted. Correct those people who get off course quickly and reconfirm how things work in your company, so they get onboard.

With this type of limit system, you will be able to affectively manage your company as it grows before the problems hurt your bottom line!